It's been another session where the US dollar has been hit with the ugly stick and one pertinent question actively thrown around is "when should we buy USDs"? IG strategist Chris Weston says:

If we can really surmise the last two years in financial markets, it has been to do the total opposite of the consensus, at least when a trade or view has become too hot or too pessimistic. The interesting aspect now is that being long the USD, along with long US financials was the clear consensus trade at the start of the year from strategists and while banks have had their moments the USD is trading at fresh yearly lows and there doesn't seem anything resembling support holding her up.

With very little in the way of tier one US economic data this week, the moves in the USD will be driven by the ECB, or by various RBA members (we have RBA member Heath speaking today at 15:30 aest), who may look at suppressing the moves and that needs to be considered as part of one's risk management.

However, the point is the USD may turn given we have such extremities of pessimism built in, but it won't be driven by the USD side of the equation and while the elastic band is being stretched, picking to bottom seems a low probability trade, at least right here, right now.

So the USD remains the story for now, and the moves have been pushed along by a reasonable bid in US fixed income, which in turn seem to have been assisted by the failed Healthcare reform bill, with a hit to the USD valuation. AUD/USD remains the poster child of momentum, trading to a high of $US0.7943, but is now grossly overbought.

Yield differentials between Aussie government bonds and US bonds have widened fairly aggressively in the last two weeks, which have also been assisted by a rampant iron ore price, where the spot price closed up a cheeky 3% (the highest level since 11 April) and Dalian iron ore futures on fire.

The fact the RBA see a nominal real rate of 3.5% has been the huge talking point, largely driven (in my opinion) by a surprise that we have some genuine meat on the bone and we are far more used to the likes of Federal Reserve Governor Lael Brainard throwing out these sorts of numbers and not our own central bank. Either way, adjust the nominal neutral rate of 3.5% for the RBA's own view on inflation and employment and apply a standard Taylor Rule and we actually see little change in the cash rate. Clearly, the market saw 3.5% and said: "crikey, the RBA is about to go nuts tightening". It isn't going to happen.

Let's also not forget that the market is priced at a 20% chance of a hike this year and a hike is fully discounted through to mid-2018, and this seems about as rich as one can expect, that is unless we see a jump in the upcoming Aussie Q2 CPI data, which seems unlikely.

Another interesting dynamic is how the AUD is playing into equity portfolio moves. Of course, AUD sensitive stocks have been heavily traded as a thematic view, but we are seeing a strong pick up in traders who have bought into US equities and while the share price may have moved in the right direction, they are getting hit on the USD exposures, so portfolio management and the neutralising of FX exposures by buying AUD's has been in play and that seems absolutely prudent.

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